Exhibit 2.4
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 11, 2001
AMONG
COLONIAL HOLDINGS, INC.
AND
GAMECO, INC.
AND
GAMECO ACQUISITION, INC.
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
June 11, 2001 by and among Gameco, Inc., a Delaware corporation ("Parent"),
Gameco Acquisition, Inc., a Virginia corporation and wholly owned subsidiary of
Parent ("Merger Subsidiary"), Colonial Holdings, Inc., a Virginia corporation
(the "Company") and, solely with respect to Section 5.13, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an
individual resident of Florida. Parent, Merger Subsidiary and the Company are
referred to collectively herein as the "Parties."
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary
and the Company have each approved the merger of Merger Subsidiary with and into
the Company on the terms and subject to the conditions set forth in this
Agreement (the "Merger");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING
Section 1.01. The Merger. Upon the terms and subject to the conditions of
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this Agreement, and in accordance with the Virginia Stock Corporation Act (the
"Virginia Act"), Merger Subsidiary shall be merged with and into the Company at
the Effective Time (as defined in Section 1.02). Following the Merger, the
separate existence of Merger Subsidiary shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation") and a wholly
owned subsidiary of Parent, and shall succeed to and assume all the rights and
obligations of Merger Subsidiary in accordance with the Virginia Act.
Section 1.02. Effective Time. The Merger shall become effective when
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articles of merger (the "Articles of Merger"), executed in accordance with the
relevant provisions of the Virginia Act, are filed with the State Corporation
Commission of Virginia (the "Commission"); provided, however, that, upon mutual
consent of the constituent corporations to the Merger, the Articles of Merger
may provide for a later date of effectiveness of the Merger not more than thirty
(30) days after the date of filing the Articles of Merger with the Commission.
When used in this Agreement, the term "Effective Time" shall mean the date and
time at which the Articles of Merger are accepted for record or such later time
established by the Articles of Merger. The Articles of Merger shall be filed on
the Closing Date (as defined in Section 1.07).
Section 1.03. Effects of the Merger. The Merger shall have the effects set
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forth in Section 13.1-721 of the Virginia Act.
Section 1.04. Conversion of Shares. At the Effective Time, by virtue of the
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Merger and without any action on the part of Parent, Merger Subsidiary, the
Company or the holders of any of the following securities:
(a) each issued and outstanding share of the Company's Class A
common stock, par value $.01 per share (the "Class A Stock") and Class B Common
Stock, par value $.01 (the
"Class B Stock," together with the Class A Stock, the "Common Stock") held by
the Company as treasury stock and each issued and outstanding share of the
Common Stock owned by any subsidiary of the Company, Parent, Merger Subsidiary,
any other subsidiary of Parent or by CD Entertainment Ltd. (collectively, the
"Controlling Stock"), shall be canceled and retired and shall cease to exist,
and no payment or consideration shall be made with respect thereto;
(b) each issued and outstanding share of Class A Stock, other than
those shares of Class A Stock constituting Controlling Stock (the "Class A
Exchange Stock"), shall be converted into the right to receive an amount in
cash, without interest, equal to $1.10 (the "Class A Consideration") payable to
the record owner thereof upon surrender of the Certificate (as defined herein)
with respect to such shares and each issued and outstanding share of Class B
Stock, other than those shares of Class B stock constituting Controlling Stock
(the "Class B Exchange Stock," and together with the Class A Exchange Stock, the
"Exchange Stock"), shall be converted to the right to receive an amount in cash,
without interest, equal to $1.10 (the "Class B Consideration," together with the
Class A Consideration, the "Merger Consideration") payable to the record owner
thereof upon surrender of the Certificate with respect to such shares. At the
Effective Time, all such shares of Common Stock shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate or other reasonable evidence of ownership of
non-certificated shares, including, but not limited to, those held
electronically or in street name (collectively, a "Certificate") representing
any such shares of Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, without interest;
and
(c) each issued and outstanding share of capital stock or ownership
interest of Merger Subsidiary shall be converted into one fully paid and
nonassessable share of Class A common stock, par value $0.01, of the Surviving
Corporation.
Section 1.05. Payment of Shares. (a) Prior to the mailing of the Proxy
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Statement (as herein defined) to the Company's shareholders, Parent shall
appoint a bank or trust company reasonably satisfactory to the Company to act as
disbursing agent (the "Disbursing Agent") for the payment of the Merger
Consideration upon surrender of the Certificates. Parent will enter into a
disbursing agent agreement with the Disbursing Agent, in form and substance
reasonably acceptable to the Company. Prior to the Effective Time, Parent shall
deposit or cause to be deposited with the Disbursing Agent in trust for the
benefit of the Company's shareholders cash in an aggregate amount necessary to
make the payments pursuant to Section 1.04 to holders of the Exchange Stock
(such amounts being hereinafter referred to as the "Exchange Fund"). The
Disbursing Agent shall invest the Exchange Fund, as the Surviving Corporation
directs, in direct obligations of the United States of America, obligations for
which the full faith and credit of the United States of America is pledged to
provide for the payment of all principal and interest, or a combination thereof,
provided that, in any such case and subject to the obligation to effect payment
of the Merger Consideration pursuant to Section 1.05(b), no such instrument
shall have a maturity exceeding three months. Any net profit resulting from, or
interest or income produced by, such investments shall be payable to the
Surviving Corporation. The Exchange Fund shall be used only as provided in this
Agreement.
(b) Concurrently with the mailing of the Proxy Statement to the
Company's shareholders, the Company shall mail or cause to be mailed to each
person who is a record holder of the Exchange Stock, a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Disbursing Agent) and any other appropriate materials and instructions for
use
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in effecting the surrender of the Certificates in exchange for payment of the
Merger Consideration. Upon surrender to the Disbursing Agent of a Certificate,
together with such letter of transmittal duly executed and such other documents
as may be reasonably required by the Disbursing Agent, the holder of such
Certificate shall be paid promptly after the Effective Time in exchange therefor
cash in an amount equal to, in the case of the Class A Stock, the product of the
number of shares of Class A Stock represented by such Certificate multiplied by
the Class A Consideration, and, in the case of the Class B Stock, the product of
the number of shares of Class B Stock represented by such Certificate multiplied
by the Class B Consideration, and each such Certificate shall be cancelled. No
interest will be paid or accrue on the cash payable upon the surrender of the
Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered be properly endorsed or otherwise be
in proper form for transfer and that the person requesting such payment pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with this Section 1.05, each
Certificate (other than Certificates representing Controlling Shares) shall
represent for all purposes only the right to receive the Merger Consideration in
cash multiplied by the number of shares of Company Common stock evidenced by
such Certificate without any interest thereon.
(c) From and after the Effective Time, there shall be no registration
of transfers of shares of the Common Stock which were outstanding immediately
prior to the Effective Time on the stock transfer books of the Surviving
Corporation. From and after the Effective Time, the holders of shares of the
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares except as otherwise provided in this
Agreement or by applicable law. All cash paid upon the surrender of Certificates
in accordance with this Article I shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of the Common Stock
previously represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, such
Certificates shall be canceled and exchanged for cash as provided in this
Article I. At the close of business on the day of the Effective Time the stock
ledger of the Company shall be closed.
(d) At any time more than twelve months after the Effective Time, the
Surviving Corporation shall be entitled to require the Disbursing Agent to
deliver to it any funds which had been made available to the Disbursing Agent
and not disbursed in exchange for Certificates (including, without limitation,
all interest and other income received by the Disbursing Agent in respect of all
such funds). Thereafter, holders of shares of the Common Stock shall look only
to Parent (subject to the terms of this Agreement, abandoned property, escheat
and other similar laws) as general creditors thereof with respect to any Merger
Consideration that may be payable, without interest, upon due surrender of the
Certificates held by them. If any Certificates shall not have been surrendered
immediately prior to the time on which any payment in respect hereof would
otherwise escheat or become the property of any governmental unit or agency, the
payment in respect of such Certificates shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
Notwithstanding the foregoing, none of Parent, the Company, the Surviving
Corporation nor the Disbursing Agent shall be liable to any holder of the Common
Stock for any Merger Consideration in respect of such Common Stock delivered to
a public official pursuant to any abandoned property, escheat or other similar
law.
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Section 1.06. Lost or Stolen Certificates. If any Certificate has been
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lost, stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen, or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against the Surviving Corporation with
respect to such Certificate, the Disbursing Agent will deliver in exchange for
such lost, stolen, or destroyed Certificate, the appropriate Merger
Consideration with respect to the shares of Company Common Stock formerly
represented by that Certificate.
Section 1.07. Stock Options. At the Effective Time, each unexercised
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option, whether or not then vested or exercisable in accordance with its terms,
to purchase shares of Common Stock (the "Options") previously granted by the
Company or any of its subsidiaries shall be canceled automatically and the
Parent shall or shall cause the Surviving Corporation to provide the holder
thereof with a lump sum cash payment equal to the product of the total number of
shares of the Class A Stock subject to such Option immediately prior to the
Effective Time and the excess (if any) of the Class A Consideration over the
purchase price per share of the Class A Stock subject to such Option.
Section 1.08. The Closing. The closing of the transactions contemplated by
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this Agreement (the "Closing") shall take place at the executive offices of
[_____________ in ________________], commencing at 9:00 a.m. local time not
later than December 31, 2001 provided that all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the Parties will take at the Closing) have
been satisfied or waived or such other place and date as the Parties may
mutually determine (the "Closing Date").
Section 1.09. Dissenters' Rights. Notwithstanding anything in this
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Agreement to the contrary, shares of the Common Stock outstanding immediately
prior to the Effective Time and held by a holder who has not voted in favor of
the Merger and who has dissented from the Merger in accordance with Article 15
of the Virginia Act ("Dissenting Shares") shall not be converted into the right
to receive the Merger Consideration as provided in Section 1.05, unless and
until such holder fails to perfect or withdraws or otherwise loses his right to
payment under the Virginia Act. If, after the Effective Time, any such holder
fails to perfect or withdraws or loses his right to such payment, such
Dissenting Shares shall thereupon be treated as if they had been converted as of
the Effective Time into the right to receive the Merger Consideration, if any,
to which such holder is entitled, without interest thereon. The Company shall
give Parent and Merger Subsidiary prompt notice of any notice of dissent
received by the Company and, prior to the Effective Time, Parent and Merger
Subsidiary shall have the right to participate in all negotiations, proceedings
and appraisals with respect to any exercise of dissenters' rights. Prior to the
Effective Time, the Company shall not, except with the prior written consent of
Parent and Merger Subsidiary, make any payment with respect to, or settle or
offer to settle, any such dissents.
ARTICLE II
THE SURVIVING CORPORATION; DIRECTORS AND OFFICERS
Section 2.01. Articles of Incorporation. The articles of incorporation of
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the Company in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until amended in accordance with
applicable law.
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Section 2.02. Bylaws. The bylaws of Merger Subsidiary in effect at the
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Effective Time shall be the bylaws of the Surviving Corporation, until amended
in accordance with applicable law and this Agreement.
Section 2.03. Directors and Officers. The directors of Merger Subsidiary
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immediately prior to the Effective Time shall be the directors of the Surviving
Corporation as of the Effective Time. The officers of the Company shall be the
officers of the Surviving Corporation as of the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary jointly and severally represent and warrant to
the Company that, except as set forth in the Disclosure Schedule dated as of the
date hereof and signed by an authorized officer of Parent (the "Parent
Disclosure Schedule"), it being agreed that disclosure of any item on the Parent
Disclosure Schedule shall be deemed disclosure with respect to all Sections of
this Agreement if the relevance of such item is reasonably apparent from the
face of the Parent Disclosure Schedule:
Section 3.01. Organization and Qualification. Parent is a corporation and
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Merger Subsidiary is a corporation and each of Parent's other subsidiaries is a
corporation or a limited liability company in each case duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or formation and has all requisite corporate or company power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted. Each of Parent and Merger Subsidiary is qualified to
transact business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not reasonably be expected to have
Parent Material Adverse Effect (as hereinafter defined). The term "Parent
Material Adverse Effect" means an effect that is materially adverse to (i) the
business, financial condition or ongoing operations or prospects of Parent and
its subsidiaries, taken as a whole or (ii) the ability of Parent or any of its
subsidiaries to obtain financing for or to consummate any of the transactions
contemplated by this Agreement.
Section 3.02. Authority; Non-Contravention; Approvals. (a) Each of Parent
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and Merger Subsidiary has the requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby,
including, without limitation, the consummation of the financing of the Merger
pursuant to the Financing Arrangement (as defined in Section 3.04). This
Agreement and the Merger have been approved and adopted by the boards of
directors of Parent and Merger Subsidiary and Parent as the sole shareholder of
Merger Subsidiary, and no other corporate or similar proceeding on the part of
Parent or Merger Subsidiary (or any other party) is necessary to authorize the
execution and delivery of this Agreement or the consummation by Parent and
Merger Subsidiary of the transactions contemplated hereby, including, without
limitation, the Financing Arrangement. This Agreement has been duly executed and
delivered by each of Parent and Merger Subsidiary and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes a valid
and legally binding agreement of each of Parent and Merger Subsidiary
enforceable against each of them in accordance with its terms, except that such
enforcement may be subject to (i)
5
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution, delivery and performance of this Agreement by each
of Parent and Merger Subsidiary and the consummation of the Merger and the
transactions contemplated hereby, including, without limitation, the Financing
Arrangement, do not and will not violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any lien,
security interest or encumbrance upon any of the properties or assets of Parent
or any of its subsidiaries under any of the terms, conditions or provisions of
(i) the respective certificates of incorporation or bylaws of Parent or any of
its subsidiaries currently in effect, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to Parent or any of its subsidiaries
or any of their respective properties or assets, subject, in the case of
consummation, to obtaining (prior to the Effective Time) the Parent Required
Statutory Approvals (as defined in Section 3.02(c)), or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind (each a
"Contract") to which Parent or any of its subsidiaries is now a party or by
which Parent or any of its subsidiaries or any of their respective properties or
assets may be bound or affected, except, with respect to any item referred to in
clause (ii) or (iii), for any such violation, conflict, breach, default,
termination, acceleration or creation of liens, security interests or
encumbrances that would not reasonably be expected to have a Parent Material
Adverse Effect and would not materially delay the consummation of the Merger.
(c) Except for (i) applicable filings, if any, with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (ii) filing of the Articles of Merger with the
Commission, and (iii) filings with and approvals by any regulatory authority
with jurisdiction over the Company's gaming operations required under any
Federal, state, local or foreign statute, ordinance, rule, regulation, permit,
consent, approval, license, judgment, order, decree, injunction or other
authorization governing or relating to the current or contemplated gaming
activities and operations of the Company, including, but not limited to, Chapter
29 of the Annotated Code of Virginia and the rules and regulations promulgated
thereunder and all other rules and regulations, statutes and ordinances having
authority or with which compliance is required for the conduct of gambling, and
gaming (collectively, the "Gaming Laws") (the filings and approvals referred to
in clauses (i) through (iii) being collectively referred to as the "Parent
Required Statutory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by Parent or Merger Subsidiary, or the consummation by Parent or
Merger Subsidiary of the transactions contemplated hereby, including, without
limitation, the Financing Arrangement, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not reasonably be expected to have a
Parent Material Adverse Effect and would not materially delay the consummation
of the Merger.
Section 3.03. Proxy Statement and Other SEC Filings. None of the
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information to be supplied by Parent or its subsidiaries for inclusion in (i)
any proxy statement (the "Proxy
6
Statement") to be distributed in connection with the Company's special meeting
of shareholders (the "Special Meeting") called for the purpose of voting on this
Agreement and the transactions contemplated hereby at the time of the mailing to
shareholders of the Proxy Statement or any amendment or supplement thereto, or
(ii) the Schedule 13E-3 required under the Exchange Act with respect to the
transactions contemplated hereby or any amendments or supplements thereto (the
"Transaction Statement") at the time of the final filing thereof with the SEC,
and, in each case, at the time of the Special Meeting, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
Section 3.04. Financing. Parent intends to raise $________________ in a
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debt financing pursuant to Rule 144A promulgated under the Securities Act of
1933, as amended (the "Securities Act") in order to provide financing for the
Merger (the "Financing Arrangement") and has engaged U.S. Bancorp Libra to
provide financial advisory and debt placement services in connection therewith.
Section 3.05. Brokers and Finders. Except as disclosed in the Parent
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Disclosure Schedule, neither Parent nor Merger Sub has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any investment banking fees, finder's
fees or brokerage fees in connection with the transactions contemplated hereby.
Section 3.06. Compliance with Applicable Laws. The businesses of Parent and
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Merger Subsidiary are not being conducted in violation of any law, ordinance or
regulation of any governmental entity which violation, insofar as reasonably can
be foreseen, would prevent or materially impair the consummation by Parent and
Merger Subsidiary of the Merger and the transactions contemplated hereby. As of
the date of this Agreement, no investigation or review by any governmental
entity with respect to Parent and Merger Subsidiary is pending or, to the
knowledge of Parent and Merger Subsidiary, threatened, nor has any governmental
entity indicated an intention to conduct the same which investigation or review,
insofar as reasonably can be foreseen, would prevent or materially impair the
consummation by Parent and Merger Subsidiary of the Merger and the transactions
contemplated hereby.
Section 3.07. Litigation. There is no suit, action or proceeding pending
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or, to the knowledge of Parent, threatened against or affecting Parent or any of
its subsidiaries, which, if determined adversely to Parent or any of its
subsidiaries and insofar as reasonably can be foreseen, would prevent or
materially impair the consummation by Parent of the Merger and the transactions
contemplated hereby; nor is there any judgment, decree, writ, injunction, rule
or order of any governmental entity or arbitrator outstanding against Parent or
any of its subsidiaries which judgment, decree, writ, injunction, rule or order,
insofar as reasonably can be foreseen, would prevent or materially impair the
consummation by Parent of the Merger and the transactions contemplated hereby.
Section 3.08. Ownership and Interim Operations. The Merger Subsidiary was
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formed solely for the purpose of engaging in the transactions contemplated
hereby and has engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement. The Merger Subsidiary is, and
immediately prior to the Effective Time will be, directly and wholly owned by
Parent. Merger Subsidiary does not own, and at all times from and after the date
hereof and prior to the Effective Time will continue not to own, any asset other
than an amount of cash necessary for its due incorporation and good standing and
to pay the fees
7
and expenses of the Merger attributable to it if the Merger is consummated or
otherwise required pursuant to the terms of this Agreement and any other assets
as are reasonably necessary for the Merger Subsidiary to fulfill its obligations
with respect to the transactions contemplated by this Agreement.
Section 3.09. Organizational Instruments. Parent heretofore has furnished
--------------------------
to the Company complete and correct copies of the respective organizational and
constituent instruments and documents of Parent and Merger Subsidiary, in each
case as amended or restated to the date hereof. Neither Parent nor Merger
Subsidiary is in violation of any provisions of its respective organizational
and constituent instruments and documents.
Section 3.10. Disclosure. No representation or warranty made by Parent or
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Merger Subsidiary in this Agreement and no statement of Parent or Merger
Subsidiary contained in any certificate delivered by Parent or Merger Subsidiary
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. For purposes of this Section 3.10, the term
"material" shall be measured by reference to Parent and its subsidiaries,
considered as an entirety.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Subsidiary that,
except as set forth in the disclosure schedule dated as of the date hereof and
signed by an authorized officer of the Company (the "Company Disclosure
Schedule"), it being agreed that disclosure of any item on the Company
Disclosure Schedule shall be deemed disclosure with respect to all Sections of
this Agreement if the relevance of such item is reasonably apparent from the
face of the Company Disclosure Schedule:
Section 4.01. Organization and Qualification. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of Virginia
and has the requisite corporate power and authority to own, lease and operate
its assets and properties and to carry on its business as it is now being
conducted. The Company is qualified to transact business and is in good standing
in each jurisdiction in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not
reasonably be expected to have a Company Material Adverse Effect (as hereinafter
defined). The term "Company Material Adverse Effect" means an effect or effects
that are materially adverse to (i) the business, financial condition, or ongoing
operations or prospects of the Company and its subsidiaries, taken as a whole,
or (ii) has a materially adverse effect on the ability of the Company to
consummate the Merger or the ability of the Parties hereto to retain any
Material Gaming License (as hereinafter defined). True, accurate and complete
copies of the Company's articles of incorporation and bylaws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Parent. The term "Material Gaming License" means a license or
similar authorization under any Gaming Law without which Parent or the Company,
as the case may be, would be prohibited from operating any of its gaming
properties in the state in which such property is located.
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Section 4.02. Capitalization. (a) The authorized capital stock of the
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Company consists of (1) 12,000,000 shares of Class A Stock, and (2) 3,000,000
shares of Class B Stock. As of the close of business on the date hereof: (i)
5,025,239 shares of Class A Stock and 2,242,500 shares of Class B Stock are
issued and outstanding all of which shares are validly issued and are fully
paid, nonassessable and free of preemptive rights, (ii) 6,974,761 shares of
Class A Stock and 757,500 shares of Class B Stock are authorized but unissued,
(iii) 395,000 shares of Class A Stock and no shares of Class B Stock are
reserved for issuance upon exercise of Options issued and outstanding, (iv)
238,100 Options to purchase Class A Stock and no Options to purchase Class B
Stock are issued and outstanding. Assuming the exercise of all outstanding
Options, as of the date hereof, there would be 5,263,339 shares of Class A Stock
and 2,242,500 shares of Class B Stock issued and outstanding. Since March 31,
2001, except as permitted by this Agreement, (i) no shares of capital stock of
the Company have been issued except in connection with the exercise of the
instruments referred to in the second sentence of this Section 4.02(a), and (ii)
except as set forth in Section 4.02(a) of the Company Disclosure Schedule, no
options, warrants, securities convertible into, or commitments with respect to
the issuance of shares of capital stock of the Company have been issued, granted
or made.
(b) Except as set forth in Section 4.02(a) and Section 4.02(a) of the
Company Disclosure Schedule, as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement and including any rights plan or other anti-takeover agreement,
obligating the Company or any subsidiary of the Company to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the capital
stock of the Company or obligating the Company or any subsidiary of the Company
to grant, extend or enter into any such agreement or commitment. Except as set
forth in Section 4.02(a) there are no outstanding stock appreciation rights or
similar derivative securities or rights of the Company or any of its
subsidiaries. Except as disclosed in the SEC Reports (as defined in Section
4.05) or as otherwise contemplated by this Agreement, there are no voting
trusts, irrevocable proxies or other agreements or understandings to which the
Company or any subsidiary of the Company is a party or is bound with respect to
the voting of any shares of capital stock of the Company.
Section 4.03. Subsidiaries. Each direct and indirect subsidiary of the
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Company is duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization and has the requisite power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted and each subsidiary of the Company
is qualified to transact business, and is in good standing, in each jurisdiction
in which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary; except, in all
cases, where the failure to be so organized, existing, qualified or in good
standing would not reasonably be expected to have a Company Material Adverse
Effect. All of the outstanding shares of capital stock of or other equity
interests in each subsidiary of the Company are validly issued, fully paid,
nonassessable and free of preemptive rights, as applicable. There are no
subscriptions, options, warrants, rights, calls, contracts or other commitments,
understandings, restrictions or arrangements relating to the issuance or sale
with respect to any shares of capital stock of or other equity interests in any
subsidiary of the Company, including any right of conversion or exchange under
any outstanding security, instrument or agreement. For purposes of this
Agreement, the term "subsidiary" means, with respect to any specified person
(the "Owner") any other person of which more than 50% of the total voting power
of shares of capital stock or other equity interests
9
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, trustees or other governing body thereof is at
the time owned or controlled, directly or indirectly, by such Owner or one or
more of the other subsidiaries of such Owner.
Section 4.04. Authority; Non-Contravention; Approvals. (a) The Company has
---------------------------------------
the requisite corporate power and authority to enter into this Agreement and,
subject to the Company Shareholders' Approval (as defined in Section 6.01(a))
with respect solely to the Merger, to consummate the transactions contemplated
hereby. This Agreement and the Merger have been approved and adopted by the
board of directors of the Company, and no other corporate proceedings on the
part of the Company are necessary to authorize the execution and delivery of
this Agreement or, except for the Company Shareholders' Approval with respect
solely to the Merger, the consummation by the Company of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company, and, assuming the due authorization, execution and delivery hereof by
Parent and Merger Subsidiary, constitutes a valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the Merger and the transactions contemplated
hereby do not and will not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, contractually require any offer to purchase
or any prepayment of any debt, or result in the creation of any lien, security
interest or encumbrance upon any of the properties or assets of the Company or
any of its subsidiaries under any of the terms, conditions or provisions of (i)
the respective certificates of incorporation or bylaws of the Company or any of
its subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, subject, in the case of consummation, to
obtaining (prior to the Effective Time) the Company Required Statutory Approvals
(as defined in Section 4.04(c)) and the Company Shareholders' Approval, or (iii)
any Contract to which the Company or any of its subsidiaries is now a party or
by which the Company or any of its subsidiaries or any of their respective
properties or assets may be bound or affected, subject, in the case of
consummation, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties as specified in Section
4.04(b) of the Company Disclosure Schedule, except, with respect to any items
referred to in clause (ii) or (iii), for any such violation, conflict, breach,
default, termination, acceleration or creation of liens, security interests or
encumbrances that would not, individually or in the aggregate, have a Company
Material Adverse Effect and would not prevent or materially delay the
consummation of the Merger.
(c) Except for (i) the filings, if any, by Parent required by the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) any applicable filings with the SEC pursuant to the Exchange Act,
(iii) filing of the Articles of Merger with the Commission, (iv) any filings
with or approvals from authorities required solely by virtue of the
jurisdictions in which Parent or its subsidiaries conduct any business or own
any assets, and (v) filings with and approvals in respect of the Gaming Laws
(the filings and approvals referred to in
10
clauses (i) through (v) and those disclosed in Section 4.04(c) of the Company
Disclosure Schedule being collectively referred to as the "Company Required
Statutory Approvals"), no declaration, filing or registration with, or notice
to, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not individually or in the aggregate have a Company
Material Adverse Effect and would not prevent or materially delay the
consummation of the Merger.
Section 4.05. Reports and Financial Statements. Since January 1, 1998, the
--------------------------------
Company has filed with the SEC all forms, statements, reports and documents
(including all exhibits, post-effective amendments and supplements thereto)
(collectively, the "SEC Reports") required to be filed by it under each of the
Securities Act, the Exchange Act and the respective rules and regulations
promulgated thereunder, all of which, as amended if applicable, complied when
filed in all material respects with all requirements of the applicable act and
the rules and regulations promulgated thereunder. As of their respective dates,
the SEC Reports did not contain any untrue statement of a material fact or omit
to state a material fact required to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The audited
consolidated financial statements of the Company (the "Company Financial
Statements") included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 as filed with the SEC have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly present
in all material respects the financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended.
Section 4.06. Absence of Undisclosed Liabilities. Except as disclosed in
----------------------------------
the SEC Reports or the Company Disclosure Schedule, neither the Company nor any
of its subsidiaries had at December 31, 2000 or March 31, 2001 or has incurred
since March 31, 2001 and as of the date hereof, any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature, except (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Company Financial Statements or reflected in the notes thereto,
or (ii) which were incurred after March 31, 2001 in the ordinary course of
business and consistent with past practice, (b) liabilities, obligations or
contingencies which (i) would not, individually or in the aggregate, have a
Company Material Adverse Effect, or (ii) have been discharged or paid in full
prior to the date hereof in the ordinary course of business, and (c)
liabilities, obligations and contingencies which are of a nature not required to
be reflected in the consolidated financial statements of the Company and its
subsidiaries prepared in accordance with generally accepted accounting
principles consistently applied.
Section 4.07. Absence of Certain Changes or Events. Since the date of the
------------------------------------
most recent SEC Report filed prior to the date of this Agreement that contains
consolidated financial statements of the Company, there has not been any Company
Material Adverse Effect provided that continuing reasonably foreseeable
financial losses or financial losses consistent with historical losses or
resulting from the breach by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), the sole shareholder
of Parent and the Chief Executive Officer and the Chairman of the Board of
Directors of the Company of his obligations pursuant to Section 5.13 shall not
constitute a Company Material Adverse Effect for purposes of this Section 4.07.
11
Section 4.08. Litigation. Except as referred to in the SEC Reports or
----------
Section 4.08 of the Company Disclosure Schedule, there are no claims, suits,
actions or proceedings pending or, to the knowledge of the Company, threatened
against, relating to or affecting the Company or any of its subsidiaries, before
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that would, individually or in the aggregate, have
a Company Material Adverse Effect. Except as referred to in the SEC Reports,
neither the Company nor any of its subsidiaries is subject to any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that
prohibits the consummation of the transactions contemplated hereby or would
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 4.09. Proxy Statement and Other SEC Filings. None of the
-------------------------------------
information to be supplied by the Company or any of its subsidiaries for
inclusion in (i) the Proxy Statement at the time of the mailing thereof or any
amendment or supplement thereto, or (ii) the Transaction Statement at the time
of final filing thereof or any amendment or supplement thereto with the SEC,
and, in each case, at the time of the Special Meeting will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply in all material respects with all applicable laws,
including, but not limited to, the provisions of the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation is made by
the Company with respect to information supplied by Parent, Merger Subsidiary or
any stockholder of Parent for inclusion therein.
Section 4.10. No Violation of Law. Except as disclosed in the SEC Reports
-------------------
or Section 4.10 of the Company Disclosure Schedule, neither the Company nor any
of its subsidiaries is in violation of or has been given written, or to the
knowledge of the Company's executive officers oral, notice of any violation of,
any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable environmental law, ordinance or regulation)
of any governmental or regulatory body or authority, except for violations which
would not reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect. Except as disclosed in the SEC Reports or
Section 4.10 of the Company Disclosure Schedule, to the knowledge of the
Company, no investigation or review by any governmental or regulatory body or
authority is pending or threatened, nor has any governmental or regulatory body
or authority indicated an intention to conduct the same, other than, in each
case, those the outcome of which would not reasonably be expected, individually
or in the aggregate, to have a Company Material Adverse Effect. To the knowledge
of the Company's executive officers, the Company and its subsidiaries are not in
material violation of the terms of any material permit, license, franchise,
variance, exemption, order or other governmental authorization, consent or
approval necessary to conduct their businesses as presently conducted
(collectively, the "Company Permits"), except for delays in filing reports or
violations which would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect.
Section 4.11. Compliance with Agreements. Except as disclosed in the SEC
--------------------------
Reports or Section 4.11 of the Company Disclosure Schedule, neither the Company
nor any of its subsidiaries is in breach, violation or default in the
performance or observance of any term or provision of, and, to the knowledge of
the Company's executive officers, no event has occurred which, with lapse of
time or action by a third party, would result in a default under, any Contract
12
to which the Company or any of its subsidiaries is a party or by which any of
them is bound or to which any of their property is subject, other than breaches,
violations and defaults which would not, individually or in the aggregate, have
a Company Material Adverse Effect. The Company's insurance policies relating to
directors' and officers' liability are in full force and effect.
Section 4.12. Taxes. (a) The Company and its subsidiaries have (i) duly
-----
filed with the appropriate governmental authorities all Tax Returns (as defined
in Section 4.12(c)) required to be filed by them, and such Tax Returns are true,
correct and complete, and (ii) duly paid in full or reserved in accordance with
generally accepted accounting principles on the Company Financial Statements all
Taxes (as defined in Section 4.12(c)) required to be paid, except in each such
case as would not, individually or in the aggregate, have a Company Material
Adverse Effect. Except as would not, individually or in the aggregate, have a
Company Material Adverse Effect, there are no liens for Taxes upon any property
or asset of the Company or any subsidiary thereof, other than liens for Taxes
not yet due or Taxes contested in good faith and reserved against in accordance
with generally accepted accounting principles. There are no unresolved issues of
law or fact arising out of a notice of deficiency, proposed deficiency or
assessment from the Internal Revenue Service (the "IRS") or any other
governmental taxing authority with respect to Taxes of the Company or any of its
subsidiaries which would individually or in the aggregate, have a Company
Material Adverse Effect. Except as would not, individually or in the aggregate,
have a Company Material Adverse Effect, neither the Company nor any of its
subsidiaries has agreed to an extension of time with respect to a Tax
deficiency, other than extensions which are no longer in effect. Except as would
not, individually or in the aggregate, have a Company Material Adverse Effect,
neither the Company nor any of its subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned subsidiary of the Company, other than
agreements the consequences of which are fully and adequately reserved for in
the Company Financial Statements.
(b) Except as would not, individually or in the aggregate, have a
Company Material Adverse Effect, the Company and each of its subsidiaries has
withheld or collected and has paid over to the appropriate governmental entities
(or is properly holding for such payment) all material Taxes required to be
collected or withheld.
(c) For purposes of this Agreement, "Taxes" means all federal, state,
local and foreign income, profits, franchise, gross receipts, environmental,
customs duty, capital stock, communications services, severance, stamp, payroll,
sales, employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions, and includes any liability for Taxes of another person by contract,
as a transferee or successor, under Treasury Regulation 1.1502-6 or analogous
state, local or foreign law provision or otherwise, and "Tax Return" means any
return, report or similar statement (including attached schedules) required to
be filed with respect to any Tax, including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax.
Section 4.13. Employee Benefit Plans; ERISA. (d) The SEC Reports and the
-----------------------------
Company Disclosure Schedule set forth each material employee or director benefit
plan, arrangement or agreement, including, without limitation, any employee
welfare benefit plan within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), any employee
pension benefit plan within the meaning of Section 3(2) of ERISA
13
(whether or not such plan is subject to ERISA) and any bonus, incentive,
deferred compensation, vacation, stock purchase, stock option, severance,
employment, change of control or fringe benefit plan, program or agreement
(excluding any multi-employer plan as defined in Section 3(37) of ERISA (a
"Multi-employer Plan") and any multiple employer plan within the meaning of
Section 413(c) of the Internal Revenue Code of 1986, as amended (the "Code"))
that is sponsored, maintained or contributed to by the Company or any of its
subsidiaries or by any trade or business, whether or not incorporated, all of
which together with the Company would be deemed a "single employer" within the
meaning of Section 4001 of ERISA (collectively, the "Company Plans").
(a) Except as disclosed in the SEC Reports or in the Company
Disclosure Schedule, (i) there have been no prohibited transactions within the
meaning of Section 406 or 407 of ERISA or Section 4975 of the Code with respect
to any of the Company Plans that could result in penalties, taxes or liabilities
which would individually or in the aggregate, have a Company Material Adverse
Effect, (ii) no Company Plan is subject to Title IV of ERISA, (iii) each of the
Company Plans has been operated and administered in accordance with all
applicable laws during the period of time covered by the applicable statute of
limitations, except for failures to comply which would not, individually or in
the aggregate, have a Company Material Adverse Effect, (iv) each of the Company
Plans which is intended to be "qualified" within the meaning of Section 401(a)
of the Code has been determined by the IRS to be so qualified and such
determination has not been revoked by failure to satisfy any condition thereof
or by a subsequent amendment thereto or a failure to amend, except that it may
be necessary to make additional amendments retroactively to maintain the
"qualified" status of such Company Plans, and the period for making any such
necessary retroactive amendments has not expired, (v) to the knowledge of the
Company and its subsidiaries, there are no pending, threatened or anticipated
claims involving any of the Company Plans other than claims for benefits in the
ordinary course or claims which would not reasonably be expected, individually
or in the aggregate, to have a Company Material Adverse Effect, (vi) no Company
Plan provides post-retirement medical benefits to employees or directors of the
Company or any of its subsidiaries beyond their retirement or other termination
of service, other than coverage mandated by applicable law, (vii) all material
contributions or other amounts payable by the Company or its subsidiaries as of
the date hereof with respect to each Company Plan in respect of current or prior
plan years have been paid or accrued in accordance with generally accepted
accounting principles, (viii) with respect to each Multi-employer Plan
contributed to by the Company, to the knowledge of the Company and its
subsidiaries, as of the date hereof, none of the Company or any of its
subsidiaries has received any notification that any such Multi-employer Plan is
in reorganization, has been terminated or is insolvent, (ix) the Company and
each of its subsidiaries has complied in all respects with the Worker Adjustment
and Retraining Notification Act, except for failures which would not,
individually or in the aggregate, have a Company Material Adverse Effect, and
(x) no act, omission or transaction has occurred with respect to any Company
Plan that has resulted or could result in any liability of the Company or any
subsidiary under Section 409 or 502(c)(1) of ERISA or Chapter 43 of Subtitle (A)
of the Code, except for liabilities which would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(b) Except as set forth in the Company Disclosure Schedule, and
excluding payments in respect of outstanding Options or Common Stock, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, any severance or "excess parachute payment" (within the
meaning of Section 280G of the Code)) becoming due to any director or
14
employee of the Company or any of its subsidiaries under any Company Plan, (ii)
increase any benefits otherwise payable under any Company Plan, or (iii) result
in any acceleration of the time of payment or vesting of any such benefits.
Section 4.14. Labor Controversies. Except as disclosed in the SEC Reports,
-------------------
(a) there are no significant controversies pending or, to the knowledge of the
Company, threatened between the Company or any of its subsidiaries and any
representatives (including unions) of any of their employees, and (b) to the
knowledge of the Company, there are no organizational efforts presently being
made involving any of the presently unorganized employees of the Company or any
of its subsidiaries.
Section 4.15. Environmental Matters. (a) Except as disclosed in the SEC
---------------------
Reports or Section 4.15 of the Company Disclosure Schedule, (i) the Company and
its subsidiaries have conducted their respective businesses in compliance with
all applicable Environmental Laws, including, without limitation, having all
permits, licenses and other approvals and authorizations necessary for the
operation of their respective businesses as presently conducted, (ii) none of
the properties owned by the Company or any of its subsidiaries contain any
Hazardous Substance (as defined in Section 4.15(c)) in amounts exceeding the
levels permitted by applicable Environmental Laws (as defined in Section
4.15(b)), (iii) since January 1, 1998, neither the Company nor any of its
subsidiaries has received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity
indicating that the Company or any of its subsidiaries may be in violation of,
or liable under, any Environmental Law in connection with the ownership or
operation of their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or, to the Company's knowledge, threatened, against the
Company or any of its subsidiaries relating to any violation, or alleged
violation, of any Environmental Law, (v) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company or any of its
subsidiaries as a result of any activity of the Company or any of its
subsidiaries during the time such properties were owned, leased or operated by
the Company or any of its subsidiaries, and (vi) neither the Company, its
subsidiaries nor any of their respective properties are subject to any
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for violations
of the foregoing clauses (i) through (vi) that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(b) As used herein, "Environmental Law" means any federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety, or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect at the Effective Time. The
term "Environmental Law" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976
15
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal Act and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Occupational Safety
and Health Act of 1970, each as amended and as in effect at the Effective Time,
and (ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass and
strict liability) that may impose liability or obligations for injuries or
damages arising from or threatened as a result of, the presence of, effects of
or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which exposure
is regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, or asbestos-containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
Section 4.16. Title to Assets. The Company and each of its subsidiaries has
---------------
good and valid title in fee simple to all its real property and good title to
all its leasehold interests and other properties, as reflected in the most
recent balance sheet included in the Company Financial Statements, except for
properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value, or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Company's business
operations (in the manner presently carried on by the Company), or (iii) as
disclosed in the SEC Reports, or Section 4.16 of the Company Disclosure
Schedule, and except for such matters which would not, reasonably be expected
individually or in the aggregate, have a Company Material Adverse Effect. All
leases under which the Company or any of its subsidiaries leases any real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than failures to be in good standing and defaults under such
leases which would not reasonably be expected, individually or in the aggregate,
to have a Company Material Adverse Effect.
Section 4.17. Company Shareholders' Approval. The affirmative vote of
------------------------------
shareholders of the Company required for approval and adoption of this Agreement
and the Merger is more than sixty-six and two-thirds percent (66.666%) of the
outstanding shares of the Class A Stock and the Class B Stock voting as a
separate class.
Section 4.18. Brokers and Finders. The Company has not entered into any
-------------------
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any finder's fees or brokerage fees in
connection with the transactions contemplated hereby, except as disclosed in
Section 4.18 of the Company Disclosure Schedule.
Section 4.19. Financial Advisors. The Company has not entered into any
------------------
contract, arrangement or understanding with any person or firm which may result
in the obligation of the
16
Company to pay any financial advisory fees in connection with the transactions
contemplated hereby, other than fees payable to BB&T Capital Markets (the
"Company Financial Advisor"), or as disclosed in Section 4.19 of the Company
Disclosure Schedule. An accurate copy of any fee agreement with the Company
Financial Advisor has been made available to Parent.
ARTICLE V
COVENANTS
Section 5.01. Conduct of Business by the Company Pending the Merger. Except
-----------------------------------------------------
as otherwise contemplated by this Agreement or disclosed in Section 5.01 of the
Company Disclosure Schedule, after the date hereof and prior to the Effective
Time or earlier termination of this Agreement, unless Parent shall otherwise
agree in writing, the Company shall, and shall cause its subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and in a manner substantially consistent with past practice;
(b) not (i) amend or propose to amend their respective articles of
incorporation or bylaws or equivalent constitutional documents, (ii) split,
combine or reclassify their outstanding capital stock, or (iii) declare, set
aside or pay any dividend or distribution payable in cash, stock, property or
otherwise, except for the payment of dividends or distributions to the Company
or a wholly-owned subsidiary of the Company by a direct or indirect wholly-owned
subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any class or
any debt or equity securities convertible into or exchangeable for any such
capital stock, except that the Company may issue shares upon the exercise of
Options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or borrowings under the existing credit facilities of the Company or
of any of its subsidiaries up to the existing borrowing limit on the date
hereof, and (B) borrowings to refinance existing indebtedness on terms which are
reasonably acceptable to Parent; provided that in no event shall aggregate
indebtedness of the Company and its subsidiaries, net of all cash and cash
equivalents, exceed $______________, (ii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible into or
exchangeable for its capital stock other than in connection with the exercise of
outstanding Options pursuant to the terms of the Company Plans, (iii) make any
acquisition of any assets or businesses other than expenditures for current
assets for fixed or capital assets in each case in the ordinary course of
business, (iv) without Parent's consent, acquire any gaming property, (v) sell,
pledge, dispose of or encumber any assets or businesses other than (A) sales of
businesses or assets disclosed in Section 5.01 of the Company Disclosure
Schedule, (B) pledges or encumbrances pursuant to existing credit facilities or
other permitted borrowings, (C) sales of real estate, assets or facilities for
cash consideration (including any debt assumed by the buyer of such real estate,
assets or facilities) to non-affiliates of the Company of
17
less than $10,000 in each such case and $100,000 in the aggregate, (D) sales or
dispositions of businesses or assets as may be required by applicable law, and
(E) sales or dispositions of assets in the ordinary course of business, or (vi)
enter into any binding contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and use all reasonable efforts to
preserve the goodwill and business relationships with customers and others
having business relationships with them other than as expressly permitted by the
terms of this Agreement;
(f) not enter into, amend, modify or renew any employment, consulting,
severance or similar agreement with, or grant any salary, wage or other increase
in compensation or increase in any employee benefit to, any director or officer
of the Company or of any of its subsidiaries, except (i) for changes that are
required by applicable law, (ii) to satisfy obligations existing as of the date
hereof, or (iii) in the ordinary course of business consistent with past
practice;
(g) not enter into, establish, adopt, amend or modify any pension,
retirement, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare plan, agreement, program or arrangement, in respect of any director,
officer or employee of the Company or of any of its subsidiaries, except, in
each such case, as may be required by applicable law or by the terms of
contractual obligations existing as of the date hereof, including any collective
bargaining agreement;
(h) not make expenditures in excess of expenditures permitted by the
Company's last budget approved by the Board of Directors, including, but not
limited to, capital expenditures, or enter into any binding commitment or
contract to make expenditures, except (i) expenditures which the Company or its
subsidiaries are currently contractually committed to make, (ii) other
expenditures not exceeding $100,000 in each such case and $300,000 in the
aggregate, (iii) for emergency repairs and other expenditures necessary in light
of circumstances not anticipated as of the date of this Agreement which are
necessary to avoid significant disruption to the Company's business or
operations consistent with past practice (and, if reasonably practicable, after
consultation with Parent), or (iv) for repairs and maintenance in the ordinary
course of business consistent with past practice;
(i) not make, change or revoke any material Tax election unless
required by law or make any agreement or settlement with any taxing authority
regarding any material amount of Taxes or which would reasonably be expected to
materially increase the obligations of the Company or the Surviving Corporation
to pay Taxes in the future.
Section 5.02. Control of the Company's Operations. Nothing contained in
-----------------------------------
this Agreement shall give to Parent, directly or indirectly, rights to control
or direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
Section 5.03. Acquisition Transactions. (a) After the date hereof and prior
------------------------
to the Effective Time or earlier termination of this Agreement, the Company
shall not, and shall not
18
permit any of its subsidiaries to, initiate, solicit, negotiate, encourage or
provide confidential information to facilitate, and the Company shall use all
reasonable efforts to cause any officer, director or employee of the Company, or
any attorney, accountant, investment banker, financial advisor or other agent
retained by it or any of its subsidiaries, not to initiate, solicit, negotiate,
encourage or provide non-public or confidential information to facilitate, any
proposal or offer to acquire all or any substantial part of the business,
properties or capital stock of the Company, whether by merger, purchase of
assets, tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as an "Acquisition Transaction").
(b) Notwithstanding the provisions of paragraph (a) above, (i) the
Company may, prior to receipt of the Company Shareholders' Approval, in response
to an unsolicited bona fide written offer or proposal with respect to a
potential or proposed Acquisition Transaction (an "Acquisition Proposal") from a
corporation, partnership, person or other entity or group (a "Potential
Acquirer") which the Company's Board of Directors determines, in good faith and
after consultation with its independent financial advisor, would reasonably be
expected to result (if consummated pursuant to its terms) in an Acquisition
Transaction more favorable to the Company's shareholders than the Merger (a
"Qualifying Proposal"), furnish (subject to the execution of a confidentiality
agreement substantially similar to the Confidentiality Agreement (as defined in
Section 5.04)) confidential or non-public information to, and negotiate with,
such Potential Acquirer, may resolve to accept, or recommend, and, upon
termination of this Agreement in accordance with Section 7.01(v) and after
payment to Parent of the fee pursuant to Section 5.09(b), enter into agreements
relating to, a Qualifying Proposal which the Company's Board of Directors, in
good faith, has determined is reasonably likely to be consummated (such
Qualifying Proposal being a "Superior Proposal") and (ii) the Company's Board of
Directors may take and disclose to the Company's shareholders a position
contemplated by Rule 14e-2 under the Exchange Act or otherwise make disclosure
required by the federal securities laws. It is understood and agreed that
negotiations and other activities conducted in accordance with this paragraph
(b) shall not constitute a violation of paragraph (a) of this Section 5.03.
(c) The Company shall promptly notify Parent after receipt of any
Acquisition Proposal, indication of interest or request for non-public
information relating to the Company or its subsidiaries in connection with an
Acquisition Proposal or for access to the properties, books or records of the
Company or any subsidiary by any person or entity that informs the Board of
Directors of the Company or such subsidiary that it is considering making, or
has made, an Acquisition Proposal. Such notice to Parent shall be given orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the material terms and conditions of such proposal, inquiry or
contact.
Section 5.04. Access to Information. The Company and its subsidiaries shall
---------------------
afford to Parent and Merger Subsidiary and their respective accountants,
counsel, financial advisors, sources of financing and other representatives (the
"Parent Representatives") reasonable access during normal business hours with
reasonable notice throughout the period prior to the Effective Time to all of
their respective properties, books, contracts, commitments and records
(including, but not limited to, Tax Returns) and, during such period, shall
furnish promptly (i) a copy of each report, schedule and other document filed or
received by any of them pursuant to the requirements of federal or state
securities laws or filed by any of them with the SEC in connection with the
transactions contemplated by this Agreement, and (ii) such other information
concerning its businesses, properties and personnel as Parent or Merger
Subsidiary shall
19
reasonably request and will obtain the reasonable cooperation of the Company's
officers, employees, counsel, accountants, consultants and financial advisors in
connection with the investigation of the Company by Parent and the Parent
Representatives. Notwithstanding the foregoing, the Company shall not be
required to provide any information which it reasonably believes it may not
provide to Parent by reason of applicable law, rules or regulations, which
constitutes information protected by attorney/client privilege, or which the
Company or any subsidiary is required to keep confidential by reason of
contract, agreement or understanding with third parties entered into prior to
the date hereof.
Section 5.05. Confidentiality. The Company, Parent and Merger Subsidiary
---------------
shall each insure that all non-public information which the Company, Parent
and/or Merger Subsidiary, any of their respective officers, directors,
employees, attorneys, agents, investment bankers, or accountants may now possess
or may hereafter create or obtain relating to the financial condition, results
of operations, business, properties, assets, liabilities, or future prospects of
the Company, Parent and/or Merger Subsidiary, any affiliate of any of them, or
any customer or supplier of any of them or any such affiliate, shall not be
published, disclosed, or made accessible by any of them to any other person or
entity at any time or used by any of them except pending the Closing in the
business and for the benefit of the Surviving Corporation; provided, however,
that the restrictions of this sentence shall not apply (a) as may otherwise be
required by law, (b) as may be necessary or appropriate in connection with the
enforcement of this Agreement, or (c) to the extent such information shall have
otherwise become publicly available. The Company, Parent and/or Merger
Subsidiary shall, and shall cause all other such persons and entities to,
deliver to the Parent all tangible evidence of such non-public information to
which the restrictions of the foregoing sentence apply at the Closing or the
earlier rightful termination of this Agreement.
Section 5.06. Notices of Certain Events. (a) The Company shall promptly as
-------------------------
reasonably practicable after executive officers of the Company acquire knowledge
thereof, notify Parent of: (i) any notice or other communication from any person
alleging that the consent of such person (or another person) is or may be
required in connection with the transactions contemplated by this Agreement
which consent relates to a material Contract to which the Company or any of its
subsidiaries is a party or which, if not obtained, would materially delay
consummation of the Merger; (ii) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and (iii) any actions, suits,
claims, investigations or proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise affecting the Company
or any of its subsidiaries that, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 4.08 or 4.10 or
which relate to the consummation of the transactions contemplated by this
Agreement.
(b) Each of Parent and Merger Subsidiary shall as promptly as
reasonably practicable after executive officers of Parent acquire knowledge
thereof, notify the Company of: (i) any notice or other communication from any
person alleging that the consent of such person (or other person) is or may be
required in connection with the transactions contemplated by this Agreement
which consent relates to a material Contract to which Parent or any of its
subsidiaries is a party or which, if not obtained, would materially delay the
Merger, (ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement, and (iii) any actions, suits, claims, investigations
20
or proceedings commenced or, to the best of its knowledge, threatened against
Parent or Merger Subsidiary, which relate to consummation of the transactions
contemplated by this Agreement.
(c) Each of the Company, Parent and Merger Subsidiary agrees to give
prompt notice to each other of, and to use commercially reasonable efforts to
remedy, (i) the occurrence or failure to occur of any event which occurrence or
failure would be likely to cause any of its representations or warranties in
this Agreement to be untrue or inaccurate at the Effective Time unless such
failure or occurrence would not have a Company Material Adverse Effect or a
Parent Material Adverse Effect, as the case may be, and (ii) any failure on its
part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder unless such failure or occurrence
would not have a Company Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be. The delivery of any notice pursuant to this Section
5.05(c) shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
Section 5.07. Meeting of the Company's Shareholders. The Company shall as
-------------------------------------
promptly as practicable after the date of this Agreement take all action
necessary in accordance with the Virginia Act, applicable state and federal
securities laws, and the Company's articles of incorporation and bylaws to
convene the Special Meeting. The board of directors of the Company shall
recommend that the Company's shareholders vote to approve the Merger and adopt
this Agreement; provided, however, that the Company may change its
recommendation in any manner if its recommendation of the Merger would be
inconsistent with the Board of Directors' fiduciary duties under applicable law,
as determined by the board of directors in good faith after consultation with
its financial and legal advisors.
Section 5.08. Proxy Statement and Other SEC Filings. As promptly as
-------------------------------------
practicable after execution of this Agreement, the Company shall prepare and
file the Proxy Statement and the Transaction Statement, and use all commercially
reasonable efforts to have the Proxy Statement and the Transaction Statement
cleared by the SEC. Parent, Merger Subsidiary and the Company shall cooperate
with each other in the preparation of the Proxy Statement and the Transaction
Statement, and the Company shall notify Parent of the receipt of any comments of
the SEC with respect to the Proxy Statement and/or the Transaction Statement and
of any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide promptly to Parent copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall give Parent and its counsel the opportunity to review the
Proxy Statement and the Transaction Statement prior to its being filed with the
SEC and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and the Transaction Statement
and all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company,
Parent and Merger Subsidiary agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the Proxy
Statement and the Transaction Statement have been cleared by the SEC, the
Company shall mail the Proxy Statement to the shareholders of the Company. Prior
to the date of approval of the Merger by the Company's shareholders, each of the
Company, Parent and Merger Subsidiary shall correct promptly any information
provided by it to be used specifically in the Proxy Statement and the
Transaction Statement that shall have become false or misleading in any material
respect and the Company shall take all steps necessary to file with the SEC any
amendment to the Proxy Statement and the Transaction Statement so as to correct
the same and to cause the amended Proxy Statement and
21
Transaction Statement to be disseminated to the Shareholders of the Company, in
each case to the extent required by applicable law.
Section 5.09. Public Announcements. Parent and the Company will consult
--------------------
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law, will not issue any such press
release or make any such public statement prior to such consultation.
Section 5.10. Expenses and Fee. (a) All costs and expenses incurred in
----------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, except that those expenses incurred
in connection with printing and filing the Proxy Statement and the Transaction
Statement shall be shared equally by Parent and the Company.
(b) The Company agrees to pay to Parent a fee equal to $250,000 within
two (2) business days of the termination of this Agreement if:
(i) the Company terminates this Agreement pursuant to clause
(v) of Section 7.01;
(ii) Parent terminates this Agreement pursuant to clause (vi) of
Section 7.01; or
(iii) this Agreement is terminated for any reason at a time at
which Parent was not in material breach of its representations, warranties,
covenants and agreements contained in this Agreement and was entitled to
terminate this Agreement pursuant to clause (iv) or (vii) of Section 7.01;
and provided that, in the event of the foregoing: (A) prior to the time of the
Special Meeting, a proposal by a third party relating to an Acquisition
Transaction had been publicly proposed or publicly announced; and (B) on or
prior to the 12 month anniversary of the termination of this Agreement, the
Company or any of its subsidiaries or affiliates enters into an agreement or
letter of intent (or resolves or announces an intention to do) with respect to
an Acquisition Transaction involving a person, entity or group if such person,
entity, group (or any member of such group, or any affiliate of any of the
foregoing) made a proposal with respect to an Acquisition Transaction on or
after the date hereof and prior to the Special Meeting and such Acquisition
Transaction is consummated.
(c) Parent agrees to pay the Company a fee equal to $400,000 if Parent
fails to consummate the transactions contemplated by this Agreement on or before
12:00 noon, Eastern Time, on or before December 31, 2001 notwithstanding the
satisfaction of the conditions to Parent's obligation to consummate the
transactions contemplated by this Agreement on or before December 31, 2001 (not
including conditions whose failure to be satisfied is the result of a breach of
a representation, warranty or covenant of Parent or Merger Subsidiary hereunder)
Section 5.11. Agreement to Cooperate. (iv) Subject to the terms and
----------------------
conditions of this Agreement, including Section 5.03, each of the parties hereto
shall use all best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations including, but not limited to, the HSR Act and
22
the Gaming Laws, to consummate and make effective the transactions contemplated
by this Agreement, including using its best efforts to obtain all necessary or
appropriate waivers, consents or approvals of third parties required in order to
preserve material contractual relationships of Parent and the Company and their
respective subsidiaries, all necessary or appropriate waivers, consents and
approvals to effect all necessary registrations, filings and submissions and to
lift any injunction or other legal bar to the Merger (and, in that case, to
proceed with the Merger as expeditiously as possible). In addition, subject to
the terms and conditions herein provided and subject to the fiduciary duties of
the respective boards of directors of the Company and Parent, none of the
parties hereto shall knowingly take or cause to be taken any action which would
reasonably be expected to delay materially or prevent consummation of the
Merger.
(b) Without limitation of the foregoing, each of Parent and the
Company undertakes and agrees to file as soon as practicable any Notification
and Report Form required under the HSR Act with the United States Federal Trade
Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") and to make such filings and
apply for such approvals and consents as are required under the Gaming Laws.
Each of Parent and the Company shall (i) respond as promptly as practicable to
any inquiries received from the FTC or the Antitrust Division or any authority
enforcing applicable Gaming Laws for additional information or documentation and
to all inquiries and requests received from any State Attorney General or other
governmental authority in connection with antitrust matters or Gaming Laws, and
(ii) not extend any waiting period under the HSR Act or enter into any agreement
with the FTC or the Antitrust Division not to consummate the transactions
contemplated by this Agreement, except with the prior written consent of the
other Parties hereto. Each party shall (i) promptly notify the other party of
any written communication to that party from the FTC, the Antitrust Division,
any State Attorney General or any other governmental entity and, subject to
applicable law, permit the other party to review in advance any proposed written
communication to any of the foregoing; (ii) not agree to participate in any
substantive meeting or discussion with any governmental authority in respect of
any filings, investigation or inquiry concerning this Agreement or the Merger
unless it consults with the other party in advance and, to the extent permitted
by such governmental authority, gives the other party the opportunity to attend
and participate thereat; and (iii) furnish the other party with copies of all
correspondence, filings, and communications (and memoranda setting forth the
substance thereof) between them and their affiliates and their respective
representatives on the one hand, and any government or regulatory authority or
members or their respective staffs on the other hand, with respect to this
Agreement and the Merger.
Section 5.12. Directors' and Officers' Indemnification. (a) The
----------------------------------------
indemnification provisions of the articles of incorporation and bylaws of the
Company as in effect at the Effective Time shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
or immediately prior to, the Effective Time were directors, officers, employees
or agents of the Company.
(b) Without limiting Section 5.11(a), after the Effective Time, the
Surviving Corporation shall, and Parent shall cause the Surviving Corporation
to, to the fullest extent permitted under applicable law, indemnify and hold
harmless, each present and former director, officer, employee and agent of the
Company or any of its subsidiaries (each, together with such person's heirs,
executors or administrators, an "Indemnified Party" and collectively, the
23
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any actual or threatened claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative (collectively, "Costs and Expenses"), which, in whole or in part,
arises out of, relates to or is in connection with (i) any action or omission
occurring or alleged to occur prior to the Effective Time (including, without
limitation, acts or omissions in connection with such persons serving as an
officer, director or other fiduciary of any entity if such service was at the
request or for the benefit of the Company), or (ii) the Merger and the other
transactions contemplated by this Agreement or arising out of or pertaining to
the transactions contemplated by this Agreement or the events and developments
between Parent and the Company leading up to this Agreement. Any Indemnified
Party hereunder will (1) give prompt notice to the Surviving Corporation of any
claim which arises from or after the Effective Time with respect to which it
seeks indemnification, and (2) permit the Surviving Corporation to assume the
defense of such claim with counsel reasonably satisfactory to a majority of the
Indemnified Parties. In connection with the selection of counsel to represent
the Indemnified Parties in connection with clause (2) above, the Surviving
Corporation shall propose counsel to represent the Indemnified Parties. The
applicable Indemnified Parties shall have the right to approve such counsel, but
such approval shall not be unreasonably withheld. If the proposed counsel is not
approved, the Surviving Corporation shall continue to propose counsel until
counsel for the Surviving Corporation is approved by the applicable Indemnified
Parties. Any Indemnified Party shall have the right to employ separate counsel
and to participate in the defense of such claim, but the fees and expenses of
such counsel shall be at the expense of such person unless: (x) the Surviving
Corporation has agreed, in writing, to pay such fees or expenses; (y) the
Indemnifying Party shall have failed to assume the defense of such claim after
the receipt of notice from the Indemnified Party as required above and failed to
employ counsel reasonably satisfactory to a majority of the Indemnified Parties,
or (z) based upon advice of counsel to such Indemnified Party and concurrence
therewith by counsel for the group of Indemnified Parties in such matter, there
shall be one or more defenses available to such Indemnified Party that are not
available to the Surviving Corporation or there shall exist conflicts of
interest between such Indemnified Party and the Surviving Corporation and/or the
other Indemnified Parties (in which case, if the Indemnified Party notifies the
Surviving Corporation in writing that such Indemnified Party elects to employ
separate counsel at the expense of the Surviving Corporation, the Surviving
Corporation shall not have the right to assume the defense of such claim on
behalf of such Indemnified Party), in each of which events the reasonable fees
and expenses of such counsel (which counsel shall be reasonably acceptable to
the Surviving Corporation) shall be at the expense of the Surviving Corporation.
(c) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume the obligations of the Surviving Corporation
or the Parent, as the case may be, set forth in this Section 5.11.
(d) For a period of six years after the Effective Time, Parent shall
cause to be maintained or shall cause the Surviving Corporation to maintain in
effect the current policies of directors' and officers' liability insurance
maintained by the Company and its subsidiaries (the "Current Insurance")
(provided that Parent may substitute therefor policies of at least the same
24
coverage and amounts containing terms and conditions that are no less
advantageous to the Indemnified Parties, and which coverages and amounts shall
be no less than the coverages and amounts provided at that time for Parent's
directors and officers) with respect to matters arising on or before the
Effective Time. Parent and the Surviving Corporation shall not be required to
expend in any year an amount in excess of 125% of the annual aggregate premiums
currently paid by the Company for such insurance; provided that, if the annual
premiums of such insurance coverage exceed such amount, Parent and the Surviving
Corporation shall be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the Parent's board of directors, for a
cost not exceeding such amount. Parent shall also cause to be maintained or
shall cause the Surviving Corporation to maintain in effect such additional
directors' and officers' liability insurance with respect to liability arising
out of this Agreement and the transactions contemplated hereby in such amount as
the Parent and the Company shall agree prior to the Effective Time (the
"Additional Insurance"). Parent and the Surviving Corporation shall not be
required to expend in any year an amount in excess of $30,000 for the Additional
Insurance.
(e) The indemnification rights of the Indemnified Parties granted
under (i) this Agreement, (ii) the articles of incorporation and bylaws of the
Surviving Corporation, as amended, and (iii) the Virginia Act are the only
indemnification rights available to the Indemnified Parties and supercede any
other rights to indemnification under other agreements if any. The provisions of
this Section 5.11 shall survive the consummation of the Merger and expressly are
intended to benefit each of the Indemnified Parties.
(f) Parent hereby fully and unconditionally guarantees the performance
of the Surviving Corporation's obligations under Sections 5.11(a)-(c). This
guaranty is a guaranty of payment and not performance.
Section 5.13. Financing. As a condition precedent to the Company's
---------
obligation to mail the Proxy Statement to the Company's stockholders in
accordance with Section 5.07 of this Agreement, Parent shall deliver to the
Company an executed, written "highly confident" letter from U.S. Bancorp Libra
or one or more similar lending institutions (each, a "Letter") that it can
arrange the Financing Arrangement, which shall include, in the aggregate,
financing sufficient to fund the consummation of the transactions contemplated
by this Agreement, including, without limitation, the Merger, and to satisfy all
other costs and expenses arising in connection with this Agreement. Parent shall
use its reasonable efforts to consummate the Financing on terms and conditions
consistent with the Letters or such other Financing Arrangement on terms as
shall be reasonably satisfactory to Parent, on or before the Closing Date; but
reasonable efforts of Parent as used in this Section 5.12 shall in no event
require Parent to agree to financing terms materially more adverse to Parent
than those provided for in the Letters. Parent shall use its reasonable efforts
to obtain the cash proceeds of the Financing Arrangement prior to the Closing
Date. Parent shall keep the Company informed about the status of the Financing
Arrangement, including, but not limited to, providing copies of financing
documents and informing the Company of the termination of any Letter.
Section 5.14. Funding of Continuing Operations (a) ▇▇▇▇▇▇ shall provide to
--------------------------------
the Company up to $1,000,000 in working capital through December 31, 2001, which
shall be made available to the Company upon the Company's reasonable request and
of which a maximum of $600,000 shall be cash and the balance of which, not to
exceed $400,000, shall be in the form of forgiveness of fees and expenses
payable to ▇▇▇▇▇▇ and/or his affiliates as ▇▇▇▇▇▇ shall determine in his sole
discretion. Such working capital shall be provided to the Company in such
combination of equity or debt as determined by ▇▇▇▇▇▇ in his sole discretion
and, if provided as
25
debt, shall be on the terms incurred by ▇▇▇▇▇▇, if applicable, or on terms
comparable to those of other loans by ▇▇▇▇▇▇ or his affiliates to the Company.
(b) Until the Closing or earlier rightful termination of this Agreement,
▇▇▇▇▇▇ shall not terminate or cause to be terminated the Management Agreement
dated as of February 7, 2001 by and among Colonial Holdings Management, Inc.,
Jalou, LLC and Jalou II, Inc., except upon such grounds as may constitute cause
for termination pursuant thereto or under applicable law or upon the expiration
of the term of such agreements (and regardless of whether such expiration
requires notice to the Company of termination or non-renewal).
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.01. Conditions to the Obligations of Each Party. The obligations
-------------------------------------------
of the Company, Parent and Merger Subsidiary to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement and the Merger shall have been adopted by the
requisite vote of the shareholders of the Company in accordance with the
Virginia Act (the "Company Shareholders' Approval");
(b) none of the parties hereto shall be subject to any order or
injunction of any governmental authority of competent jurisdiction that
prohibits the consummation of the Merger. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable best
efforts to have any such order overturned or injunction lifted;
(c) the waiting period applicable to consummation of the Merger under
the HSR Act, if applicable, shall have expired or been terminated;
(d) the Company Proxy Statement on Schedule 14A and the Transaction
Statement shall be filed in definitive form with the SEC and shall not be the
subject of any stop order or similar proceeding; and
(e) Update of Fairness Opinion. At the Effective Time, the Company
--------------------------
Financial Adviser shall have reaffirmed orally or in writing the fairness
opinion previously prepared and delivered by it to the Special Committee of the
Board of Directors of the Company.
Section 6.02. Conditions to Obligation of the Company to Effect the Merger.
------------------------------------------------------------
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following additional conditions:
(a) Parent and Merger Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Effective Time and the representations and warranties of
Parent and Merger Subsidiary contained in this Agreement shall be true and
correct on and as of the Effective Time as if made at and as of such date
(except to the extent that such representations and warranties speak as of
26
an earlier date, and which need be true and correct as of such earlier date)
except for such failures to perform or to be true and correct that would not
have a Parent Material Adverse Effect, and the Company shall have received a
certificate of the chief executive officer or the chief financial officer of
Parent to that effect;
(b) all Parent Statutory Approvals and Company Statutory Approvals
required to be obtained in order to permit consummation of the Merger under
applicable law shall have been obtained, except for any such Parent Statutory
Approvals or Company Statutory Approvals the unavailability of which would not,
individually or in the aggregate (i) have a Company Material Adverse Effect
after the Effective Time, or (ii) result in the Company or its subsidiaries
failing to meet the standards for licensing, suitability or character under any
Gaming Laws relating to the conduct of Parent's or the Company's business which
(after taking into account the anticipated impact of such failure to so meet
such standards on other authorities) would have a Company Material Adverse
Effect (after giving effect to the Merger);
(c) Consents. The Parent shall have obtained the consent or approval
--------
to the transactions contemplated by this Agreement of each person from whom such
consent or approval is required under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument to which the Parent
is a party or by which it is bound except where the failure to obtain such
consents or approvals would not, in the reasonable opinion of the Company,
individually or in the aggregate, have a Parent Material Adverse Effect, or
materially affect the consummation of the transactions contemplated hereby; and
(d) Payment of Exchange Funds. The Parent shall have obtained and
-------------------------
segregated for payment to the Company sufficient cash funds as required by the
terms hereof, to pay in full at the Effective Time, or promptly thereafter, to
the holders of the Common Stock, the Exchange Funds and shall have deposited the
Exchange Funds with the Disbursing Agent pursuant to Section 1.05 hereof.
Section 6.03. Conditions to Obligations of Parent and Subsidiary to Effect
------------------------------------------------------------
the Merger. Unless waived by Parent and Merger Subsidiary, the obligations of
----------
Parent and Merger Subsidiary to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time and the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the Effective
Time as if made at and as of such date (except to the extent that such
representations and warranties speak as of an earlier date), except for such
failures to perform and to be true and correct that would not have a Company
Material Adverse Effect, and Parent shall have received a certificate of the
chief executive officer or the chief financial officer of the Company to that
effect;
(b) all Parent Statutory Approvals and Company Statutory Approvals
required to be obtained in order to permit consummation of the Merger under
applicable law shall have been obtained, except for any such Parent Statutory
Approvals or Company Statutory Approvals whose unavailability would not (i) have
a Parent Material Adverse Effect, or (ii) result in Parent or its subsidiaries
failing to meet the standards for licensing, suitability or character under any
Gaming Laws relating to the conduct of Parent's or the Company's business which
(after taking into account the anticipated impact of such failure to so meet
such standards on other authorities)
27
would reasonably be expected to have a Parent Material Adverse Effect (after
giving effect to the Merger);
(c) Consents. The Company shall have obtained the consent or approval
--------
to the transactions contemplated by this Agreement of each person from whom such
consent or approval is required under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument to which the Company
is a party or by which it is bound except where the failure to obtain such
consents or approvals would not, in the reasonable opinion of the Parent,
individually or in the aggregate, have a Company Material Adverse Effect, or
materially affect the consummation of the transactions contemplated hereby; and
(d) shareholders of the Company owning not more than ten percent (10%)
in the aggregate of the Common Stock shall have exercised dissenter's rights
pursuant to Article 15 of the Virginia Act.
ARTICLE VII
TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time (notwithstanding any approval of this Agreement
by the shareholders of the Company):
(i) by mutual written consent of the Company and Parent;
(ii) by either the Company or Parent, if the Merger has not been
consummated by December 31, 2001 provided that the right to terminate
this Agreement under this clause shall not be available to any party
whose failure to fulfill any of its obligations under this Agreement
has been the cause of or resulted in the failure to consummate the
Merger by such date;
(iii) by either the Company or Parent if any judgment,
injunction, order or decree of a court or governmental agency or
authority of competent jurisdiction shall restrain or prohibit the
consummation of the Merger, and such judgment, injunction, order or
decree shall become final and nonappealable and was not entered at the
request of the terminating party;
(iv) by either the Company or Parent, if (x) there has been a
breach by the other party of any representation or warranty contained
in this Agreement which would reasonably be expected to have a Company
Material Adverse Effect or a Parent Material Adverse Effect, as
applicable, or prevent or delay the consummation of the Merger beyond
December 31, 2001, and which has not been cured in all material
respects within 30 days after written notice of such breach by the
terminating party, or (y) there has been a breach of any of the
covenants or agreements set forth in this Agreement on the part of the
other party, which would reasonably be expected to have a Parent
Material Adverse Effect or a Company Material Adverse Effect, as
applicable, or prevent or delay the consummation of the Merger beyond
December 31, 2001, and which breach is not curable or, if
28
curable, is not cured within 30 days after written notice of such
breach is given by the terminating party to the other party;
(v) by the Company if, prior to receipt of the Company
Shareholders' Approval, the Company receives a Superior Proposal,
resolves to accept such Superior Proposal, and shall have given Parent
two days' prior written notice of its intention to terminate pursuant
to this provision; provided, however, that such termination shall not
be effective until such time as the payment required by Section
5.09(b) shall have been received by Parent;
(vi) by the Parent, if the board of directors of the Company
shall have failed to recommend, or shall have withdrawn, modified or
amended in any material respect its approval or recommendation of the
Merger or shall have resolved to do any of the foregoing, or shall
have recommended another Acquisition Proposal or if the Board of
Directors of the Company shall have resolved to accept a Superior
Proposal or shall have recommended to the shareholders of the Company
that they tender their shares in a tender or an exchange offer
commenced by a third party (excluding any affiliate of Parent or any
group of which any affiliate of Parent is a member); or
(vii) by Parent or the Company if the shareholders of the Company
fail to approve the Merger at a duly held meeting of shareholders
called for such purpose (including any adjournment or postponement
thereof);
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Effect of Termination. In the event of termination of this
---------------------
Agreement by either Parent or the Company pursuant to Article VII, this
Agreement shall forthwith become void and there shall be no liability or further
obligation on the part of the Company, Parent, Merger Subsidiary or their
respective officers or directors (except as set forth in this Section 8.01, in
the second sentence of Section 5.04 and in Section 5.09, all of which shall
survive the termination). Nothing in this Section 8.01 shall relieve any party
from liability for any breach of any representation, warranty, covenant or
agreement of such party contained in this Agreement, except that if the fee
provided for in Section 5.09(b) or the fee provided for in Section 5.09(c)
becomes payable in accordance therewith, that fee will constitute the exclusive
remedy of and the sole amount payable to the party entitled thereto with respect
to the event or circumstances in connection with which that fee becomes so
payable.
Section 8.02. Nonsurvival of Representations and Warranties. No
---------------------------------------------
representation, warranty or agreement in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Merger, and after
effectiveness of the Merger neither the Company, Parent, Merger Subsidiary nor
any of their respective officers or directors shall have any further obligation
with respect thereto except for the agreements contained in Articles I, II and
VIII and Section 5.11.
Section 8.03. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be considered given upon receipt if delivered
personally, mailed by registered
or certified mail (return receipt requested) or sent via facsimile to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to the Company:
Colonial Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
and
Hirschler, Fleicher, ▇▇▇▇▇▇▇▇, Cox & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇/▇▇/ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
If to Parent or Merger Subsidiary:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ Investments
▇▇▇▇ ▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ ▇▇▇ #▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: 216/▇▇▇-▇▇▇▇
Fax: 216/▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
30
Section 8.04. Interpretation. The headings contained in this Agreement are
--------------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, (ii) "knowledge" shall mean actual
knowledge of the executive officers of the Company or Parent, as applicable, and
(iii) reference to any Article or Section means such Article or Section hereof.
Section 8.05. Miscellaneous. This Agreement (including the documents and
-------------
instruments referred to herein) shall not be assigned by operation of law or
otherwise except that Merger Subsidiary may assign its obligations under this
Agreement to any other wholly-owned subsidiary of Parent subject to the terms of
this Agreement, in which case such assignee shall become the "Merger Subsidiary"
for all purposes of this Agreement. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF VIRGINIA
WITHOUT GIVING EFFECT TO APPLICABLE CONFLICT OF LAWS PRINCIPLES.
Section 8.06. Counterparts This Agreement may be executed in two or more
------------
counterparts, each of which shall be considered to be an original, but all of
which shall constitute one and the same agreement.
Section 8.07. Amendments; No Waivers. (a) Any provision of this Agreement
----------------------
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, Parent and Merger Subsidiary or, in the case of a waiver, by the
party against whom the waiver is to be effective; however, any waiver or
amendment shall be effective against a party only if the board of directors of
such party approves such waiver or amendment.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 8.08. Entire Agreement. This Agreement and the Confidentiality
----------------
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by either party hereto. Neither this Agreement nor any provision
hereof is intended to confer upon any person other than the parties hereto any
rights or remedies hereunder except for Section 5.11, which is intended for the
benefit of the Company's former and present officers, directors, employees and
agents, Articles I and II, which are intended for the benefit of the Company's
shareholders, including holders of Options, and Section 5.06, which is intended
for the benefit of the parties to the agreements or participants in the plans
referred to therein.
Section 8.09. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or unenforceable, all other provisions of this
Agreement shall remain in full force and
31
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
Section 8.10. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur if any of the provisions of this Agreement were
not to be performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof in addition to any
other remedies at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
COLONIAL HOLDINGS, INC.
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
_________________________________________
▇▇▇ ▇. ▇▇▇▇▇▇▇
Name:____________________________________
President
Title:___________________________________
GAMECO
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
_________________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
MERGER SUBSIDIARY
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
_________________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
_________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
32